Paying Off Interest vs. Paying Off Principle

“I have a 30-year fixed-rate loan and I've had THIS mortgage for just over two years. it seems that I'm paying off a lot more interest than principle each month. why is that? will that change?”

Fixed-rate, principle plus interest loans are based on amortization schedules, which are calculators of monthly loan payments. By design, your initial payments are interest-heavy and then—as the loan matures—you’ll begin paying down more of the principle. Depending on your interest rate and the specific type of loan you have, your “break-even” point (in which your interest payment and principle payment are the same amount) might not come until 20 years into the loan; it’s not until later in a loan’s life that the majority of your monthly payment will go towards principle. For example, if you have a $300,000 loan at an interest rate of 5 percent, you mortgage will be fully paid down by 19 percent after 10 years and 32 percent after 15 years. Although you may be anxious to start paying down more of your principle, keep this in mind: Since the amount of mortgage interest you pay each year is tax-deductible, the initial few years of a mortgage do offer much greater tax benefits. ∆